Standing Committee B

[Mr. James Cran in the Chair]

Pensions Bill

James Cran: It may be for the convenience of the Committee if I explain about the tabling of amendments between now and when we return to Committee on Tuesday 20 April. Any amendments or new clauses tabled today will appear in print on blue pages tomorrow. Any amendments or new clauses received by the Public Bill Office up to and including Thursday 15 April will be printed and appear on blue pages on Friday 16 April. Any amendments or new clauses tabled on Friday 16 April will be printed and appear on blue pages on Monday 19 April. Anything that has appeared in print on or before Monday 19 April may be included in the Chairman's selection of amendments for debate on Tuesday 20 April.
 Clause 138 ordered to stand part of the Bill.

Clause 139 - Amounts to be raised by the pension

Nigel Waterson: I beg to move amendment No. 360, in
clause 139, page 85, line 36, leave out '50%' and insert '75%'.
 Thank you for clarifying matters, Mr. Cran, although it has risked ruining my Easter recess. There is nothing more encouraging—or, rather, enervating—than to be involved in Committee matters when everyone else has been allowed to go home. 
 Under clause 139, as we can tell at a glance from subsection (3), the levy must be based on at least 50 per cent. of the amount raised by the risk-based pension protection levy. Judging from the Minister's previous comments, I am knocking or pushing at an open door—whichever is the right expression—because he has made a great deal of saying that the Government's policy is that most of the levy should be calculated on a risk base. 
 I hope that it will not cause pain to Labour Members to know that the amendment is supported by the National Association of Pension Funds, which has a slight genuine interest in the Bill. I am sure that some hon. Members who are new to occupational pensions, as opposed to the public benefit system, may not be aware of the association's crucial role in such matters. It is comforting to know that it is alongside us in such amendments.

Malcolm Wicks: I think that you challenged the association a bit.

Nigel Waterson: I am not saying that the NAPF gets everything right nor am I saying that the Minister gets everything wrong. Obviously, there must be a bit of give and take. The amendment would simply replace
 50 per cent. with 75 per cent. We want to make it sure that the overwhelming majority of the levy is risk based. As we said, there are various reasons for such action. Such a measure is only fair on well run businesses and schemes. It would also help to tackle the problem of moral hazard. When I first became familiar with such matters, I was not sure what that meant, but I now have a more clear understanding of it and it is much less interesting than I first thought.
 There is an incentive to encourage employers to fund their schemes to the best of their ability if the risk-based element is as high as possible—at least 75 per cent. or preferably 90 per cent. plus, if that can be arranged. I shall cite a couple of examples of reputable companies, which have similar worries to ours and those of the NAPF. British Telecom has already been mentioned, and its defined benefit pension scheme is the largest in the United Kingdom. Its assets are worth £26 billion. It has 180,000 pensioners, 100,000 deferred pensioners and 87,000 active members. As the Committee would expect, it is a well run and responsibly funded scheme. 
 BT supports the idea of a pension protection fund but, as it says, it needs to be proportionate and certain. It is trying to avoid wild variations year on year, such as the FRS 17 valuations, and says that the levy cannot be so large that it places such an additional burden on schemes judged to be underfunded that it exacerbates existing problems. To put that in context, and assuming the flat-rate levy in the first year and the £300 million to £350 million per annum cost of running the fund, BT calculates that it would pay out £12 million in the flat-rate levy. It commented on the 50 per cent. risk-based proposal, and clearly there will be year-on-year variations in how much it will be required to pay. BT points out that it was suggested in The Times recently that it might have to pay up to £100 million a year. By any stretch of the imagination, we are talking about big players, at the top end of the best kind of employers, with the most responsible attitudes to pension provision.

Steve Webb: Does the hon. Gentleman accept that there is a paradox in the case of a scheme such as BT's? If we demand a high proportion of the total premium to be risk based, which is what I want, but the Government insist that the risk-based element is based only on the underfunding risk, BT, with potentially colossal underfunding because of the snapshot way of measuring it, could find itself paying more until such time that the Government add the insolvency risk. That is another reason why we need to get on and establish the thing in full.

Nigel Waterson: I would not disagree with a word of that. It is not just the insolvency risk, but the risk profile of the investments that a company chooses to make. I have no doubt that BT's approach to all these matters is praiseworthy and an example to other schemes. Sadly, I expect that several schemes do not come up to its high standards. However, the bigger the schemes are, the harder they fall. If it happens to be a big scheme and, because of the rollercoaster nature of equity markets, it has a large paper deficit, it could end up paying extremely high amounts. At the moment,
 there is even talk of schemes paying £100 million a year.
 BT came to talk to me and it made a plea. A view of risk analysis needs to reflect the fact that companies such as BT take a long-term approach to risk. It hopes that that will also be the attitude of the PPF. It thinks that that means using a funding risk-analysis approach via an actuarial valuation, rather than a volatile accounting valuation approach—that is, FRS 17—or commercial rating levels applied to companies, or second-guessing asset mixes against scheme profiles. What are the Minister's comments on that? These are serious people who know what they are talking about. Their briefing says that there should be no risk at all to company or fund, but there will probably be a large paper deficit, although that is not mentioned in the briefing. 
 That leads me to another major employer, and an issue to which we referred on Second Reading. I am keen to get the Minister's input, as I really do not know the answer to it. The Times recently referred to another issue, under the heading ''M&S leads pension bond rush''—a headline that seems a little over-excited when compared with article that follows. This was the news that Marks & Spencer has a £1 million black hole, as the newspapers would call it, or deficit, as we should refer to it, in the pension scheme. It was hoping to tackle at least part of that with a bond issue of £400 million. The article suggests that for larger companies, for which that could be a cost-effective way of raising money, M&S will set a trend. The Minister may remember that on Second Reading I said that that is another disparity between smaller, less well run and less well funded schemes, which cannot do that, and the very big companies, which can. 
 If companies such as M&S do that kind of thing, does that count in reducing their underfunding? Will it have a direct effect on the amount of levy they pay? I assume that M&S would take such action for the best possible reasons—we would expect that—but also because it will save it money on the levy. I assume that the answer to my question is yes, but I have seen the speculation in the press. It would help if the Minister gave a distinctive answer. 
 One final example is Allied Domecq, which is a large company that is entirely signed up to the concept of a safety net for pensioners that is established in legislation. However, it has serious concerns about the mechanics of the scheme's funding. It says: 
''We are not aware that any large employers' pension fund has failed to deliver the pension benefits anticipated by its members.''
 That relates to something that I said this morning. It is interesting that so far that has happened to smaller schemes and smaller companies. Of course, I am not talking down the real hardship and anxiety that such circumstances cause to the members. 
 Allied Domecq has 58,000 members, almost half of whom are currently enjoying pensions that are largely funded by the company's contributions. It thinks that it is inequitable that the burden of funding the PPF should 
''fall disproportionately on large employers such as ourselves.''
 It makes the obvious point, which cannot be gainsaid by the Minister, that the flat-rate element impacts 
''on companies with large numbers of scheme members and''
 will 
''unfairly penalise pension funds established for lower paid employees relative to pension funds where the employees enjoy higher levels of pay''.
 It is also concerned about the risk-related element, because it might focus exclusively on a scheme's PPF funding level. 
 Allied Domecq proposes two things: first, that 
''the flat rate element of the PPF levy be based on the total PPF liabilities of each scheme (rather than the number of members)'',
 and, secondly, that the 
''board be required, as a minimum, to ensure that the risk of default by the sponsoring company is fully factored into the calculation of the risk based levy together with the scheme funding level in respect of its PPF liabilities.''
 Those are sensible proposals. Although that is not the way the Government are planning to go—at least, not in respect of the first proposal—I am interested to hear the Minister's objections, if he has any. 
 I return, finally, to the moral hazard. As the CBI pointed out, the idea of a PPF 
''could encourage less scrupulous employers to act in an imprudent manner . . . a company might fund at too low a level or might be tempted to hold a higher risk portfolio than appropriate'',
 which is why the risk profile of a given pension fund must be built in. The CBI also says that the PPF could result in 
''reduced vigilance by trustees . . . excessive benefit promises by employers . . . companies or trustees granting benefit improvements just before insolvency . . . deliberate underfunding of schemes''
 and 
''providers of capital increasingly shunning companies with defined benefit plans.''
 In case anyone thinks that some of that is a bit far-fetched, one of the features of the US scene in recent years, which I learnt from no less a person than Mr. Kandarian, is that where a company is facing difficulties, it is all too easy to make employees much enhanced pension promises instead of giving them a significant pay rise. That is done on the basis that the problem is being shoved into the future, and everybody knows that if the company goes out of business, those promises will be redeemed by the Pension Benefit Guaranty Corporation. That seems to be a feature in negotiations between employees and trade unions in what I call the smokestack industries. An additional twist in the US scene is the crystallisation of certain rights on the part of workers when a plant or company goes out of business. That is already a problem in the US. If we are, as Ministers say, trying to draw on their experience, that is a good example of where we should take careful note. It is perfectly sensible to require that a minimum of 75 per cent. is risk based, on the basis that Ministers are saying that most of the levy should be calculated in that way in any case.

Steve Webb: I have some brief observations that are broadly in sympathy with what the hon. Member for Eastbourne (Mr. Waterson) said. He cited two high-profile schemes that illustrate a couple of issues raised by the PPF. I want the Minister to clarify the basis for the levy. The hon. Gentleman referred to the BT scheme. It told me that within one financial year its deficit—on the FRS 17 basis, I think—fluctuated by more than £3 billion. I hope that the Minister can confirm that the risk-based part of the levy will be raised on a more stable basis, such as actuarial valuation. However, what happens between actuarial valuations because it is my understanding that they are three yearly? We have discussed annual valuations, perhaps with the PPF board or the regulator in mind, but it is all getting a bit fuzzy—although that may be due to lunch. It would help if the Minister clarified how that will work.
 The hon. Member for Eastbourne mentioned the M&S scheme. If it makes sense for companies to borrow money to reduce the deficit in their schemes, thereby lowering the risk-based premium because—to go back to an earlier point—that takes no account of the insolvency risk and takes into account only the deficit in the fund, there will be a bizarre non-economic incentive for companies to borrow lots more money so that they save money on their PPF levies, but put themselves in a more exposed financial position. Will that be the case? Will firms have an incentive to borrow a pound, put it in the fund and save themselves the PPF levy as a result, and yet thereby increase their financial insecurity because they are more in debt? 
 The nub of the amendment is what minimum proportion of the levy should be risk based. The Government are on shaky ground. Their argument for not introducing the risk-based levy initially is that they need lots of information, but the clause presumes that the risk-based levy is up and running. It presumes that they already have enough information and the argument is about what percentage of the total should be risk based. Once they have got the information, under what circumstances would the Government or the board not want to make the levy predominantly risk based? 
 It is clear that the Government's policy intention is that the levy should be predominantly risk-based, but they also want the board to be at arm's length. Do they have any means of requiring the board to make the risk-based levy a larger proportion of the total? That is an important point, and I would be grateful if the Minister commented on it. Although it is the Government's intention that the risk-based levy is a big proportion, the board might for some reason say, ''No, it will be 50 per cent.'' If the board thwarts the Government's policy objective, who wins? If we do not require a minimum of 75 per cent., do the Government have any power to say to the board, ''No, we think it should be more risk-based for wider economic reasons''? I do not think that they have that power. 
 Under what circumstances might the board want the risk-based levy to be less than 75 per cent.—or less than 100 per cent., frankly? As the Government are 
 broadly sympathetic to that outcome, do they have any levers to make the PPF board deliver that, or can the board do what it likes on that front once it is in existence?

Malcolm Wicks: The amendment is not dissimilar to others. The Government's approach is to set down the criteria that the new board will have to take into account, and to state very clearly that we need to get the balance right between the basic levy and the risk-based levy with an emphasis on the risk element. The Government's position is not to so prescribe the new fund that the board will not have the discretion that we believe it needs and deserves, if only to put some distance between itself and some of the difficulties that the Pension Benefit Guaranty Corporation ran into in the USA.
 The hon. Member for Eastbourne said that he thought that by prescribing, or at least by using, 75 per cent. he was pushing at the door. In terms of trying to develop a soundtrack for this Committee, ''Knocking on Heaven's Door'' comes to mind. The hon. Member for Northavon (Mr. Webb) was very helpful with his Simon and Garfunkel offerings earlier, and I thought that my Parliamentary Private Secretary should apologise to the Committee for suggesting that the ''Sound of Silence'' would have been the appropriate track.

David Cairns: Never.

Malcolm Wicks: He withdraws his remark.
 The hon. Member for Eastbourne is pushing at an open door in the sense that we think that the greater proportion of the levy should be risk based. However, we do not think that it would be sensible to so restrict the new board by saying that it must be at least x per cent. That is the only difference between us; it does not come down to much more than that. 
 It was mentioned that BT could pay about £100 million. Even those who are not very good at arithmetic must realise that if we are talking of raising £300 million in the first full year after the initial year, to somehow suggest that one of our British companies might contribute a third of that defies the rules. I am sure one of the lobbyists provided the hon. Member for Eastbourne with that absurd example. It is so absurd that it could not have come from the wise and hon. Gentleman. It is daft.

Nigel Waterson: It was in The Times.

Malcolm Wicks: Well, there we go. We should not comment too much on what the figure might be for one company. A major company of that kind might pay a few million pounds initially. However, to suggest that it would be a third of the total would mean that we would soon end up with about fifty thirds adding up to the whole. We should ground the discussion in some common sense.
 We do not want to prescribe to the board what the percentage break should be. Having consulted various stakeholders and relevant bodies, we consider that an appropriate split in due course could be—although it is up to the board—about an 80 per cent., 20 per cent. split in favour of risk factors. 
 The hon. Member for Northavon asked how we stop the board doing its own thing. It would be proper common sense and convention for it to listen to our debates, as it were, in retrospect—that is a bit of retrospectivity that I support—and read what this Committee says about the issue. If, in due course, something like 80:20 came about, we would not be surprised. The hon. Gentleman, who is amused by that piece of information, should realise that for us to suggest exactly what the circumstance might be in 2005–06 would be a bit ridiculous. I hope that that gives a steer as to our broad intention.

Steve Webb: That is a helpful steer to the future. Will the Minister clarify why his preference is not for 100 per cent.?

Malcolm Wicks: It would be for the board to consider at any one time how large the greater proportion might be, and it might well be 100 per cent. I suppose that against that, one might take the view that all scheme members will potentially benefit one day, and they will certainly derive some sense of confidence and security with regard to their pension scheme from the fact that the PPF exists. It might be that some basic levy would, therefore, be appropriate, although I would not particularly want to prescribe that. The PPF will take a longer-term view. I assure the hon. Gentleman that that is one of the intentions behind the PPF. It is why, for example, the board will not be able to vary the levy by more than 25 per cent. in any one year. Perfectly appropriately, that will force the board to take a view.
 I do not think that we should run through the whole high street of companies. I was asked about M&S and bonds—the name is Bond, St. Michael Bond, is a phrase that comes to mind; it is near Easter, Mr. Cran, so forgive us. If a company issues a bond and puts money into the pension fund, then, yes, all other things being equal, we would expect such investment to lead to a lower levy. That is probably the answer to the question. 
 On lower-paid employees, the ability to take account of the level of pensionable earnings of the active members of a scheme, which we allow for, will ensure that schemes with large numbers of low-paid members will not be penalised. I hope that that is reassuring. 
 On the point that the hon. Member for Northavon raised, the PPF board will consider valuations at a specified date. For example, if one scheme completed a valuation in March and another scheme did so in June, and the results were different because of the differing economic conditions, the board might take such differences into account. 
 The regulator will collect annual information to provide an updated position. The PPF can use that to take account of variations in scheme circumstances.

Nigel Waterson: I am grateful for the Minister's clarification on a couple of points, including the St. Michael one. I hope that the industry will take note. This was never more than a probing amendment. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 139 ordered to stand part of the Bill.

Clause 140 - The levy ceiling

Nigel Waterson: I beg to move amendment No. 362, in
clause 140, page 86, line 24, at end insert 
 'save that in the first year, the levy ceiling will be no higher than £600 million'.
 Not unreasonably, the Bill attempts to impose a ceiling, so that people have at least some idea of the contributions that they are likely to be required to make. This is a probing amendment. We thought that it would be useful to get the Government to confirm that the ceiling in year one will be set no higher than £600 million. 
 Figures have been bandied around about how much the ceiling is likely to be. There is a nervousness, which I hope I managed to communicate this morning, about the claims that are likely to come in those early stages when we have not only a flat-rate levy, but a 50 per cent. of flat-rate levy as well. The regulatory impact assessment, which some of us have seen, puts the cost of the levies to employers at £300 million a year. The Times, despite the Minister's disapproval, has described that as a £40-a-year stealth tax on 8 million workers in final salary schemes. That assumes that the cost of the levy will be passed on to employees with higher contributions.

Malcolm Wicks: Given the hon. Gentleman's broad support for the PPF—I think that that is his position at the moment, on Thursday—does he regard that as a stealth tax, even though the figure that he quoted is wildly inaccurate?

Nigel Waterson: It is certainly an additional requirement for companies, and possibly, through companies, on their members. I am trying to pin the Minister down on his estimates of the cost of the scheme. Contrary to what the Government suggest, Watson Wyatt, the leading actuaries, reckon that the average administration costs for a company scheme are, at present, £90 a member. Mr. John Ralfe, famous for his connection with the Boots pension fund, said that the scheme needed £600 million from FTSE 100 companies alone; otherwise, it could go bust. Have the Government any revised estimates of the total cost of the scheme?
 Another way of looking at the issue, which I developed the other day in connection with other parts of the Bill, is to compare the experiences of the UK with those of countries such as Germany and Sweden, which approach the matter differently. For example, in Germany, the PSVaG, as it is called, raises an equivalent levy on 40,000 companies. It passes the levy along to 62 private sector insurance companies. The 28-year average levy is 0.22 per cent. of gross liabilities. Assuming gross UK pension liabilities of £650 billion to £750 billion, that would equate to an annual PPF levy of between £1.4 and £1.6 billion. 
 Let us compare that to the situation in Sweden. It has something called the FPG, which is a mutual scheme run by big companies in the private sector. Again, levies are 0.2 per cent of gross liabilities. It actually makes a profit. According to my calculation, the equivalent would produce a UK levy of between £1.2 billion and £1.4 billion. 
 The PBGC, as we know, has negative cash flow, and the situation is expected to worsen this year. To regain neutral ongoing cash flow, levies would have to triple from $948 million in 2003. If that were to happen, that would represent 0.19 per cent. of gross liabilities of $1.5 trillion dollars. Again, the equivalent rate in the UK would be premium or levy of between £1.2 and £1.4 billion. 
 Those are just three comparisons, but they all suggest that the ongoing cost to the PPF could be three or four times the figure quoted by the UK Government. Surely the Minister must give some credence to the views of someone such as John Ralfe, who knows a great deal about how occupational pension schemes work in this country.

Malcolm Wicks: Of course I take advice from outside experts very seriously, but on this occasion they are wrong, and it is important to say so. The figures cited are not at all relevant to the British experience.
 As we have heard, the amendment would result in the levy ceiling being set at no more than £600 million for the first financial year following the initial period. The amendment would not have the intended effect, for reasons that I will explain. First, let me set out how the levy ceiling will work. The responsibility for setting the levy ceiling will rest with the Secretary of State, who will need the approval of the Treasury. I do not know whether, should there ever be a different Government, the Conservatives would say that the Treasury should not be involved. We might seek clarification on that subject, just out of philosophical interest. 
 The levy ceiling will be set only once before the introduction of the pension protection levies. The Secretary of State will not set a new levy ceiling for each financial year. Instead, regulations will set out the levy ceiling, which the Secretary of State will be required to uprate annually by the general increase in earnings. 
 The levy ceiling will be set with the anticipated PPF costs in mind. We have set out in the regulatory impact assessment that the anticipated year-on-year costs of the PPF meeting its liabilities will be some £300 million. Our intention is that the levy ceiling will be set at twice that amount—in other words, at £600 million—going forward. It is only during the period of the initial levy that the levy ceiling will not apply. That is because the Secretary of State will be responsible for setting the rate of the initial levy. 
 However, during the transitional period, and for the first year after the transitional period, regulations will allow the levy ceiling to be lowered. The purpose of the power is to restrict the amount that the board may raise in the transition period, when it may not be in a position to implement a full risk-based approach. As a 
 result the amendment would have no effect, as the levy ceiling is likely to be less in the first year than the £600 million levy ceiling that will apply going forward. 
 Instead, we envisage the levy ceiling being set at a reduced level of about £300 million for the first year of the transition period. In addition, the PPF board will be required to consult before setting the pension protection levies for the first financial year following the initial levy period, as set out in clause 138. That will ensure that any levy structure that the PPF board proposes to impose will take into account the views and needs of pension schemes and sponsoring employers.

Steve Webb: I am aware that we have not reached clause 142, which deals with the transitional period, but the Minister has been talking about the transitional period and the initial period. Will he clarify, for my benefit if for no one else's, how the initial period and the transitional period relate to each other?

Malcolm Wicks: By the initial period I mean the first year—we anticipate that it will be a year—when the flat-rate levy, of 50 per cent. of the likely levy for the next year, will apply. That will be non-risk based, as we have discussed. There will then be a transitional period, as we develop the risk-based levy. I think that I gave some figures this morning to suggest that the full development, or roll-out, of the risk-based approach to every scheme will be complete by 2009.
 We have included in clause 140 a provision to enable the Secretary of State, with the approval of the Treasury, to increase the levy ceiling, should that be required. Any increase in the levy ceiling above the general increase in earnings could be considered only once the board had consulted its stakeholders and made a recommendation to the Secretary of State. 
 We are confident that the provisions that we have established for the setting of the levy ceiling and future protection levies are both appropriate and sufficient. It would be unusual to state a figure for the levy ceiling in primary legislation, particularly when further provisions in the Bill enable it to be modified. We therefore do not consider it necessary to state the amount of the levy ceiling in the Bill.

Steve Webb: I hope by this question to avoid a stand part debate, unless any other hon. Member wants one. I do not really understand the philosophy of the levy ceiling. We have heard all through our discussion about the arm's-length nature of the board, and that there would be a cap on the increase in the levy from one year to the next. Is the levy ceiling to be set at double what might the levy might be, just in case? If a cap is placed on the amount by which the levy can go up from one year to the next, I do not understand why there is a need for a levy ceiling at all.

Malcolm Wicks: In calculating the costs at £300 million a year, our methodology was based on actuarial modelling of PPF finances over the next 20 years, but updated to take account of current market conditions and the decisions taken on the precise nature of the PPF compensation payable. If the hon. Gentleman wants further detail from me about
 our thinking on the £600 million, I may need to write to him.
 However, I want to assure business that there are parameters around the level that can be set for the levy. It is sensible to set a ceiling over and above the initial £300 million. If I can give the hon. Gentleman more arithmetic about that, I shall do so. We wanted to be prudent about the ways in which the levy could be increased. Hence the idea of the cap at twice the initial amount, and the idea that it will go up by only 25 per cent. in any one year. 
 I remind the Committee of something that is sometimes forgotten in discussion: when we are talking about the finances of the PPF we refer, perfectly properly, to the levy; however, we should include in the equation the fact that when, sadly, companies go bust, the PPF has the power to take over their assets—and, certainly in the American case, those can become considerable over time. I think that the Pension Benefit Guaranty Corporation is, in that sense, almost the largest pension fund in the United States; it can be compared with perhaps two schemes in California. We hope that it will not be like that in Britain, because we do not want companies to fail. However, the assets part of the equation is considerable. 
 With those assurances, and my offer to provide such further details as I can, I hope that the hon. Gentleman will withdraw the amendment.

Nigel Waterson: I am happy with much of what the Minister said, although I think that he got things slightly inverted on his last point. The PBGC has so many assets—the Minister quickly touched on this—only because so many schemes have gone bust. So, by definition, the assets that get folded into the PPF will be insufficient to meet schemes' obligations—or am I missing something massively important?
 That brings us to the subject of the incredibly expensive purchase of annuities, which is one of the things gobbling up the assets that remain in schemes.

Malcolm Wicks: By definition, a company that has come into the PPF's warm embrace must be in trouble. It will have gone bust, and there will be a big gap between assets and liabilities. In a sense, the PPF has at least two sources of funds to meet ongoing pension liabilities: the levy that comes in every year, and the income from the assets that it will invest with suitable advice from outside organisations.

Nigel Waterson: I am not trying to deny that, and it would do no good if I did, because what the Minister says is true. If he looks across the Atlantic, he will see that the PBGC has a big deficit, but also that it has the assets to pay claims for a long time into the future. However, there are still genuine and well founded concerns about its future, because the current situation cannot go on for ever. That is simply because the imbalance between what the PBGC has to pay out and what it has in reserve is getting greater the whole time.
 However, today of all days, I do not want to extend the debate unnecessarily, so I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 140 ordered to stand part of the Bill.

Clause 141 - Valuations to determine scheme underfunding

Question proposed, That the clause stand part of the Bill.

Malcolm Wicks: It might be useful if I put on record the fact that clause 141 sets out the requirement for schemes to provide a valuation of their assets and protected liabilities in order to determine the level of underfunding.
 For the purposes of establishing a scheme's level of funding to allow the board to take account of funding levels in the risk-based pension protection levies, they will be subject to a PPF-style evaluation. That valuation will provide information on the financial state of eligible schemes that are required to pay the levy. That will help the board to determine the amount of the risk-based levy due from schemes. 
 We expect that valuation to be conducted in tandem with schemes' normal triennial valuations to ensure that additional financial burdens are not placed on employers or trustees. As I said, however, a scheme that feels that it would benefit from a lower risk-based element by bringing forwards its triennial valuation would be free to do so. 
 Question put and agreed to.

Clause 142 - Pension protection levies during the transitional period

Nigel Waterson: I beg to move amendment No. 218, in
clause 142, page 88, line 11, leave out from 'means' to '(within' in line 12 and insert 
 'a period of time no longer than two years after the initial period begins.'.
 Let me explain the purpose of the amendment, although the more I read it, the more I wonder whether this is how it will come out in the wash. As we heard, the Government's position is that during the first year, the fund will collect about half of what they would expect it to collect in a normal year—say, £150 million. They recognise that it would, in some way, be unfair, or to use a more neutral word, inappropriate, to charge the full £300 million, if that is the correct figure—which we question, as the risk-based elements have yet to be incorporated. It is clear from the drafting of the Bill that the Government plan that the fund will collect the full £300 million, or whatever the figure is, from year two in any event—hence the amendment. 
 There is a certain symmetry in requiring employers or schemes to pay only half the levy until the risk-based elements are introduced. It would also give people an incentive to get on with things, so that the 
 lack of risk-based elements could be addressed sooner rather than later. The feeling in the industry is that a two-year period for the transition is probably unrealistically tight, purely in practical terms. It looks as though they would prefer a likely result of a transitional period of about four years, as we debated this morning, so that the levy structure would be in place five—that is one plus four—years after the PPF begins. I think that that was the way in which this morning's discussion went. 
 The wording of the Bill is far too loose. A lot of people would like to see some definite commitment. I appreciate that the Minister was clear about his aspirations this morning, but they are merely aspirations. Within that time scale, even if there is not a change of Government, there is likely to be a change of Minister. By that, I mean that the Minister will go on to greater things.

Malcolm Wicks: To draw his pension.

Nigel Waterson: Or maybe to draw his pension.
 Even if the Government will not accept the amendment, which would put a two-year limit on the transitional period, would the Minister consider wording it so that it would tighten up the restriction on the length of the transitional period? That would ensure that the permanent levy structure would come into effect and the so-called transitional period would not be allowed to drift on endlessly. If Ministers are not prepared to accept a two-year maximum, why not recognise what they have already accepted in this morning's debates? A four or five-year maximum is appropriate and they should perhaps agree to that. People need some certainty, but they also need something based on reality. That would be a useful compromise.

Malcolm Wicks: The clause sets out the provisions for the levies during the transitional period. The amendment seeks to restrict the length of time for which the transitional period will apply to two years. We have made it clear that we are committed to introducing a risk-based levy as soon as possible. I thought earlier that the hon. Gentleman said that people in the business world thought that they would be hard pressed to do so within two years, but the amendment urges that it should be done within those two years. He might want to clarify that at some stage.
 Our approach gives the board the flexibility to roll out a risk-based component from the second year, without creating new burdens on trustees and employers by requiring them to conduct out-of-cycle valuations. My response will be very much in a burdens-on-business mode. The amendment would restrict the board's flexibility and could lead to new financial burdens for employers. 
 Setting up the pension protection fund as soon as we possibly can means that some of the information that the board needs to calculate the risk-based levy will not be available from the outset. The purpose of the transitional period is to allow the board to take a balanced approach to determine what information is available, what is feasible and what is necessary to implement the risk-based approach. It would not be wise or practical to restrict the transitional period from 
 the outset when it is clear that the information that the board may need to implement the risk-based levy is not fully available. The amendment that the hon. Gentleman has proposed could result in the board's being required to implement a simplified or inaccurate risk-related approach, based on incomplete or out-of-date data. 
 Moreover, the amendment could result in an additional financial burden being placed on employers, as the board would need pension schemes to obtain a PPF-style valuation outside the normal triennial cycle. The transitional period will allow the board to implement a dual system of levy calculation. We anticipate that those schemes that have completed their triennial evaluation—and which therefore have the appropriate information available—would be able to pay a levy based on risk. Those that have not done so will pay a levy based on scheme factors only. I repeat that those that want to bring forward the three-yearly review can do so if they think that that would benefit them in terms of the risk-based levy. 
 We have tried to have regard to normal cycles, in terms of valuations. That is why, although we appreciate that the hon. Gentleman was well intentioned in tabling the amendment, we cannot, sadly, accept it on this occasion.

Nigel Waterson: I am overwhelmed that the Minister thinks that I have moved up the scale and am now well intentioned in my amendment. At least we are making some progress. I appreciate that the matter is difficult and I am grateful for the Minister's explanation, so I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 142 ordered to stand part of the Bill.

Clause 143 - Calculation, collection and recovery of levies

Nigel Waterson: I beg to move amendment No. 279, in
clause 143, page 88, line 21, at end insert— 
 '( ) The trustees or managers of the scheme may charge a sum at least equivalent to the non-risked based amount of the levy to all scheme members.'.
 This is a probing amendment, but it raises some interesting issues that I look forward to seeing the Minister resolving. ''Levy'' refers to the administrative levy, if that is the right terminology. I thought long and hard about whether I should table the amendment at all. One of the deciding factors was the thought that the proposal might have been among the Government's intentions in the first place. However, it is not clear from the Bill whether employers will have the ability to share the costs of the levy with all scheme members. That does not happen in the USA, as I understand it, so we would be breaking new ground. 
 The CBI and the Engineering Employers Federation both support the proposal. The latter says: 
''Employers should be able to recover part of the PPF levy from pension scheme members'',
 as that would encourage employers to keep schemes open or even start new ones. The federation also says: 
''As members are the ultimate beneficiaries of these insurance arrangements, it is only reasonable that employers should be able to share the cost of financing the PPF by recovering at least part of the levy from members.''
 That view is echoed by the CBI, which also thinks that there should at least be the facility, where appropriate, to pass those charges on to scheme members, whether active, deferred or pensioner. However, I gather that there are sometimes practical problems, on which the Minister may have more information, in obtaining lists of names, addresses and so on. 
 Strangely, chapter 3.2.2 of the Bill's regulatory impact assessment, which the Government have kindly provided, says that 
''employers will be able to recoup the costs of the part of the levy assessed by reference to scheme factors from members, if they choose to do so.''
 That was not part of my initial understanding, but there it is in black and white. It therefore seems that, without trumpeting it, the Government are on the same wavelength as the employers' organisations to which I have referred. 
 Although the amendment is a probing amendment, I am interested in the Minister's views on the regulatory impact assessment and the preferences of the employers' organisations.

Malcolm Wicks: The clause sets out the calculation, collection and recovery of the initial, pension protection and risk-based protection levies. The amendment seeks to provide scheme trustees and managers with the power to recoup the cost of the scheme of the initial and pension protection levy from scheme members. Because that would impact on the calculation of future pension entitlements, the amendment could result in a reduction in the level of income for current pensioner members or reduce the amount of pension accrued for active and deferred members. In addition to the impact on future pension entitlements, and any potential PPF compensation, the amendment would also be difficult to administer, particularly where there is no pension in payment. Furthermore, the amendment does not restrict the amount that can be recouped from an individual scheme member, which could result in members paying towards the risk-based element of the pension protection levies.
 On reflection, the hon. Gentleman might agree that that would be unfair, because members do not have any say in how the scheme invests, or indeed in the financial state of the scheme. That also may have an effect on the behaviour of scheme trustees, who could pass on the whole cost of the pension protection levies to their members, thus preventing any increase in costs to the scheme, while continuing to undertake a risky investment strategy. 
 I hope that not least on account of those rather practical, important matters, the hon. Gentleman might consider withdrawing his amendment.

Nigel Waterson: First, I was not clear whether the Minister was dealing with the point in the regulatory impact assessment about whether the Bill as it stands
 allows some recovery of costs. I hope that he will be able to deal with that in a moment.
 Secondly, I should like to speak about a new issue relating to the same point, on which it may be appropriate for the Minister to have another bite at the cherry. In the run up to the Bill I was approached by Marconi, which is one example of a specific type of company to which this situation would apply in spades: a company that is smaller than it was, but with large legacy liabilities. Let me say immediately that Marconi supports the PPF, and its pension fund is healthy. However, it is, to use its own word, a bit ''lopsided'', because it has just 3,327 active members, but because of its history it has 69,000 deferred and pension members—a ratio of over 20:1. It estimates that the average PPF levy will amount to 1 per cent. of all active member contributions. In addition to the general point that I made in opening the debate on the amendment, there is a more specific category of companies that, for historical reasons, will be particularly affected by the levy, and for which there is an even stronger argument to be able to pass on at least some of the cost. 
 I should be interested to hear from the Minister. Perhaps he would like to write to me about this specific, narrow issue. I hope that now he has the answer on the RIA point.

Malcolm Wicks: I have reflected on this issue, and I recommend reflection—the hon. Gentleman smiles, but he might try some. There is not a great matter of principle involved. In principle, there is no reason for saying that it should never be thought that scheme members should consider contributing to the levy. Some of the issues are more practical, particularly in respect of existing pensioners, who have got used to a level of pension. Would it be appropriate—perhaps because of the difficulties that a company has got into long after they have retired—to say that they should pay a not insignificant levy?
 There are practical matters of that kind to consider. Employers currently have the ability to recover costs from active members, perhaps by reducing wages, not increasing wages to a level to which they may have risen, or increasing employees' contributions, should they choose to do so. That is best left to employers and employees to consider. If I have missed some points on the RIA, I had better write to the hon. Gentleman.

Nigel Waterson: This is one and the same point. The Minister is accepting that as the Bill stands, my amendment is probably unnecessary, because it already seems, as the RIA says, that employers could pass some of the costs to scheme members. In a sense, my amendment falls. Is that so?

Malcolm Wicks: I think that I had better write to the hon. Gentleman on that important point; I am sorry that I do not have the whole answer. It seems to me that, just in terms of the ability to look at wage increases and periodic discussions about the level of the employee's contribution, it is possible for a company to pass on the cost of the levy to the members, should that be thought wise in any company. The Government should not prescribe
 that; it is a matter for negotiation between the two sides.
 If the hon. Gentleman forgives me, I will leave my response to his point on the regulatory impact assessment to a letter.

James Cran: Mr. Waterson, are you withdrawing the amendment?

Nigel Waterson: The killer reason for withdrawing the amendment would have been the Minister confirming my suspicion that it does not add anything to the Bill. However, he is going to write to me about it, and that puts me in a predicament. I suppose I had better withdraw it and see what happens. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Amendment made: No. 390, in 
clause 143, page 88, line 28, leave out 'the Board's' and insert 
 ', on the Board's behalf, its'.—[Malcolm Wicks.]

Malcolm Wicks: I beg to move amendment No. 500, in
clause 143, page 88, line 30, after 'year,' insert 'except in prescribed circumstances,'.
 The amendment provides for regulations to set out exceptions relating to the payment of part-year levies. Subsection (5) provides for part payment of the initial levy and pension protection levies when a scheme is not an eligible scheme for the whole of the financial year. Payment of part-year levies would be required when, for instance, a new scheme is set up and becomes an eligible scheme part way through the year. The new scheme would be charged the initial levy or pension protection levies from the date it became an eligible scheme. The amendment is sensible, and technical. 
 Amendment agreed to. 
 Clause 143, as amended, ordered to stand part of the Bill.

Clause 144 - Cases where fraud compensation payments

Amendment made: No. 391, in 
clause 144, page 90, line 23, leave out from 'apply' to end of line 28 and insert— 
 '(8A) For the purposes of this section, an insolvency event (''the current event'') in relation to the employer is a qualifying insolvency event if— 
 (a) it occurs on or after the day appointed under section 98(2), 
 (b) either— 
 (i) it is the first insolvency event to occur in relation to the employer on or after that day, or 
 (ii) since the date of the last insolvency event which occurred before the current event (but not before that day) a cessation event has occurred in relation to the scheme, and 
 (c) it does not occur in such circumstances as may be prescribed.'.—[Malcolm Wicks.]
 Question proposed, That the clause, as amended, stand part of the Bill. 
Mr. George Osborne (Tatton) (Con) rose—
The Parliamentary Under-Secretary of State for Work and Pensions (Mr. Chris Pond) rose—

George Osborne: It makes more sense if the Under-Secretary speaks first.

James Cran: Let me make it clear that I choose who speaks first.

George Osborne: The Minister clearly agrees that it is important that we have a brief debate about this clause. It applies to other clauses up to clause 51. The clause transfers to the PPF the responsibilities of the pension compensation fund, which was set up in the groundbreaking Pensions Act 1995, which established the principle that people could be compensated for things that went wrong in this way with their pension scheme. My party thinks that it is sensible for only one organisation to administer the different types of funds. In our discussions of later clauses, I might deal with whether there is a requirement to have two separate funds that the PPF administers.
 I want the Minister to tell us generally about the transfer of responsibilities and to assure us that that will happen smoothly, but I also want to ask him about what is, perhaps, the most important element. I must confess that what I am talking about is addressed in clause 211, but the principle—the amount of compensation payable—is important. In the 1995 Act, the level for that was set at 90 per cent. for defined contribution schemes where members are more than 10 years from retirement and for defined benefit schemes. 
 I had the opportunity in the lunch break, in between asking a question at Treasury questions and listening to an interesting statement, to speak to the Minister who had responsibility for pensions in 1995 and who helped to introduce the pensions legislation of that year, the right hon. Member for Richmond, Yorks (Mr. Hague). 
 I told him that I was likely to discuss these clauses this afternoon. I asked him why the compensation level was set at 90 per cent. rather than 100 per cent. First of all he said, ''hold on, let me think'', because some things have happened to him professionally since that time. However, he remembered that at the time the basic argument was about moral hazard. The Government of the day thought that it was sensible to set the compensation level at 90 per cent. rather than 100 per cent. because it might give an incentive to scheme members—people who worked for a company—to keep an eye out for fraud. Therefore, they would suffer some small loss, 10 per cent. of their pension, rather than be fully compensated if things went wrong. That would create an incentive and that is what my right hon. Friend the Member for Richmond, Yorks told me over lunch. 
 Of course, the striking thing is that that argument is very similar to that deployed earlier in our discussions by the Ministers about the PPF and the 90 per cent. compensation to scheme members who are not retired. Indeed, the Minister for Pensions made exactly the same kinds of arguments about moral hazard and how 
 it would provide an incentive to scheme members to keep an eye on the financial health of their company. 
 It struck me that it is difficult to come to any qualitative differentiation between the moral hazard of a scheme member keeping an eye out for fraud as opposed to the requirement for them to keep an eye out for financial incompetence. If it were a very large company, such as Allied Steel and Wire, there is an element of rough justice, because one cannot expect a steelworker to have any idea whether there is financial incompetence or fraud taking place at the top of the company. If we were talking about more senior members of the company's management structure, they might be just as aware of dodgy practices as they were that the company were not particularly well run or that it were facing financial difficulties. 
 Therefore, I thought that it was worth asking the Minister why the Government had come to the conclusion that in the case of fraud, as opposed to that of insolvency through poor business management, there should be full compensation. The moral hazard arguments were deployed by the Government in 1995—obviously, a different Government, but they probably had the same people advising them—so, why was there a change of mind in the intervening period? 
 I am sure that he might tell me that there was a recommendation in the Myners report and the that Government said in their Green Paper that they were going to make this proposal. However, if one examines the regulatory impact assessment—the explanation given by the Government for the changes—it says on page 15: 
''If the proposed change were not implemented, the security of the pension rights built up by members of schemes that suffer from acts of dishonesty, would continue to be at risk.''
 That seems to be just a statement of the obvious rather than an explanation for why the Government are changing their mind and, particularly, why they are creating a different playing field between those scheme members who lose their pension because of financial problems and those who lose their pension because of fraud. I thought that this would be a good opportunity to ask the Government to set out why they have changed their mind, albeit from a previous Conservative Government. 
 There are a couple of other points on clause 144 that I have asked the Minister about, particularly on the date. I might have misunderstood this, but as I understand it, it is only fraud that has taken place since 6 April 1997—if that is the right way of putting it—or rather a devaluation in scheme assets that has happened since that date as a result of fraud that is eligible. However, reference is made in the clause, or certainly in the explanatory notes to any other date appointed by the Secretary of State. Does that not mean that in theory—I do not suggest that this would happen in practice, but does that not mean that in theory the Secretary of State could remove the protection against fraud that exists under the 1995 Act? The Secretary of State could set a date in the future—2020, say—and suddenly remove all the protection against fraud that Parliament has 
 provided under that Act. I am not suggesting that this Secretary of State, or any other, Conservative or Labour, would do that, but it is worth probing the Minister on why the Secretary of State should be given that discretion. 
 Under subsection (6), there is a requirement on the trustees or managers to notify the PPF within 12 months of a fraud taking place, or 12 months beyond the point at which they should reasonably have known that a fraud was taking place. Again, there is a get-out clause; the end of the subsection adds the words: 
''or within such longer period as the Board may determine in any case.'' 
What sort of criteria will the board use for extending the 12-month period? What are the good excuses that trustees or managers could deploy, particularly given that fail-safe arrangement, which allows a period of 12 months beyond the point at which the trustees or managers know, or ought reasonably to have known, that a reduction in the value of the scheme had taken place. 
 My main question to the Under-Secretary is about why the level of compensation has been raised from 90 to 100 per cent. However, the other two points, about the timing—the date of 6 April 1997—and about the 12-month period, are also important details. It would be good if the Under-Secretary responded to them.

Chris Pond: Good afternoon, Mr. Cran. As you saw, both the hon. Member for Tatton (Mr. Osborne) and I are eager to talk about clause 144—for two reasons, in my case. The first is that my hon. Friend the Minister of State has been carrying the burden of responding for most of today, and I get the sense that the Committee would like me to develop my thoughts on this group of clauses, especially as we will not be interrupted by Division bells this afternoon, and we can approach our deliberations in a more relaxed way.
 Secondly, as I have the label of anti-fraud Minister, and as we have made considerable progress towards our fraud targets, I want to explore some of the issues associated with occupational pension scheme fraud. I can reassure the Committee that identified fraud in occupational schemes is quite rare. As the hon. Member for Tatton reminded us, the Pensions Compensation Board was established under the 1995 Act in 1997, following the Maxwell incidents. In the seven years since then, that board has only needed to make three payments in three cases, totalling less than £570,000. 
 Although identified fraud is rare, when it happens it can have a serious effect on the current or future incomes of scheme members. The PCB board has provided an important safety net for members, and it is right that the PPF board should replicate and build on that function. 
 Clause 144 lists the cases in which fraud compensation can be paid. The rules are effectively the same as those of the PCB, as the hon. Member for Tatton confirmed, except that the PCB currently pays up to 90 per cent. of the fraud loss. Clause 211, which we have already considered, and to which the hon. Member for Tatton has also referred, makes provision 
 for the PCB to pay the full amount until the PPF takes over responsibility for fraud compensation payments. I will come to the hon. Gentleman's questions about why that change was made in a few moments, although that has been flagged up. 
 The main principles are that the scheme must be an occupational pension scheme, or treated as such. Its assets must also have been reduced by a dishonest act or omission since the relevant date, and it must have an insolvent employer, or one that is not to continue trading, if the insolvency occurred after the PPF ''go-live'' date. 
 In conclusion, the clause will enable us to help schemes when theft or fraud occurs, and it clearly sets out the circumstances in which the board can offer that help. I say ''in conclusion'' but that would, of course, be discourteous to the hon. Member for Tatton. His first question was why there should be a separate fund. It is important to recognise that the PCB deals with both defined contribution and defined benefit schemes, as fraud can, of course, affect DC schemes as well as DB schemes. However, the PPF will apply only to DB schemes. Therefore, we have to keep the two funds running side by side. 
 On the figure of 90 per cent. and the reason why we are increasing the amount of compensation, clause 211 was based on an assumption that the simplest and fairest approach in the exceptional circumstance of theft by fraud is fully to compensate the loss, especially since such occasions are relatively rare, instead of attempting to link compensation to scheme-specific valuation methods. The intention is that the PCB will operate under the more generous rules until the fraud compensation fund becomes effective. That partly answers the hon. Gentleman's point about moral hazard. On PPF, we have had much discussion about the figures of 90 per cent. and 100 per cent, and one of the major reasons for that was the issue of moral hazard. As we have heard, the amount of identified fraud in relation to occupational schemes is very small. It is important that we ensure that scheme members have safeguards against that fraud, but the potential impact of moral hazard is of a wholly different order of magnitude. That is why it seems appropriate to make full compensation in those rare cases in which there has been fraud.

George Osborne: The Under-Secretary says that the distinction is one of quantity, rather than quality. He says that because there are very few cases of fraud, we are not talking about a large problem. However, first, there may be bigger frauds in future; it may just be that we have been lucky. Secondly, he has not established the difference in principle. What is the difference in principle between the moral hazard that applies to an employee of a steel factory, in terms of the financial health of that company, and the role of the steel employee in terms of the fraud going on in that company? Surely the same principle of moral hazard applies.

Chris Pond: That is a valid point. Clearly, there is an issue to do with scheme members wanting to keep an eye on potential fraud, just as they might want to do in
 relation to the proper management of the scheme. However, the point about the order of magnitude is important, in terms of the implications when a scheme member suffers the impact of one of the relatively rare occurrences of fraud. Of course, that impact can be considerable. In those circumstances, there is rough justice, but in this case the rough justice is perhaps on the side of the scheme members, whereas previously in our discussions it worked slightly in the other direction. That is the reason why we reached our conclusion.
 The hon. Gentleman also asked why the period could be extended beyond 12 months. That is quite simply because, in many cases, the investigation of fraud can be complex and lengthy. If it appears that further time is needed to uncover that fraud and to ensure that scheme members are compensated, it may be necessary to extend the period. That is why we want to make provision for that in the Bill. 
 Question put and agreed to. 
 Clause 144, as amended, ordered to stand part of the Bill. 
 Clause 145 ordered to stand part of the Bill.

Clause 146 - Recovery of value

Question proposed, That the clause stand part of the Bill.

George Osborne: The clause makes it a requirement on trustees and managers to try and recover some of the money that has been lost through fraud if
''they may do so without disproportionate cost and within a reasonable time.''
 I suspect that that is replicating features of the 1995 Act, but I am not as familiar with that Act as perhaps I should be. What sort of judgment do we expect the PPF to make on disproportionate cost and reasonable time? Obviously, we do not want pensioners left hanging around for years, while lengthy court proceedings take place at the end of which not very much money is recovered.

Chris Pond: That is why the clause makes provision for a so-called settlement date. Although the trustees and managers are required to make reasonable and appropriate inquiries, and attempt to recover any of the funds that are lost as a result of fraud, we have to give what the Americans call ''closure'' to these issues and move on. That is why, as the hon. Gentleman suggested, the idea of a settlement date is proposed both in the 1995 Act and in clause 146.
 Question put and agreed to. 
 Clause 146 ordered to stand part of the Bill. 
 Clauses 147 and 148 ordered to stand part of the Bill.

Clause 149 - Board's powers to make fraud compensation transfer payments

Question proposed, That the clause stand part of the Bill.

George Osborne: As I understand it, the clause gives the power to transfer payments from the fraud compensation fund to the pension protection fund—to move funds from one fund to the other—once it has been established that fraud has taken place. That applies where the PPF has assumed responsibility for a scheme before there has been an application for fraud compensation. Because we are setting up the PPF, there will now be cases that the PPF takes responsibility for and it will subsequently discover that fraud has taken place and will wish to transfer money.
 The Minister gave a perfectly reasonable explanation of why there were two separate funds. As a result, there will also be two separate levies, which are set out in clause 151. The levies are paid for slightly differently. The fraud levy is an irregular levy, in the sense that it is levied only when it is necessary; the normal PPF levy is much more regular. Also, as the Minister has said already, different groups of people will pay them. The fraud levy will be payable by a much broader group of people. Therefore, a scheme may already have received compensation from the PPF fund, which has presumably come out of the normal levy, but money can also be transferred from the fraud fund, which is raised from a special levy. Will the people who have paid the normal levy to pay for that sum get a reduction, or their money back? If not, they will be paying twice for the same scheme. The levy may have to be increased. Let us suppose that we had a big fraud case, and the levy rose to cover the subsequently discovered fraud; money would then be taken from the fraud fund into the normal PPF fund and a special fraud levy could also be levied. Some schemes will end up having to pay twice. Will they get some of their money back?

Chris Pond: There is an issue of practicality. If fraud has been discovered after a scheme has entered what my hon. Friend the Minister for Pensions called the warm embrace of the PPF, the scheme cannot benefit from a fraud compensation payment, as would be the case for schemes outside. Normally, payment would be added to the overall funds of the scheme, but at the point of entry to the PPF the scheme ceases to exist in its own right and becomes part of the PPF compensation arrangements.
 A transfer payment will be consistent with the principle that all assets and rights of a scheme should be transferred to the PPF upon entry. In a sense, that is a deferred element of those rights and assets. The transfer payment would be made from the fraud compensation fund into the pension protection fund and would reflect the full value of the loss suffered to scheme assets. As for whether there would be a reimbursement to scheme members of part of their fraud levy, I must disappoint the hon. Gentleman and say that that is not our intention. 
 Clause 149 is very much a belt-and-braces clause. We do not expect there to be many circumstances in which the fraud is discovered after a scheme has entered the PPF. Therefore, even if we were to seek to make a reimbursement of the levies already paid, the cost of the calculation would probably far outweigh any amount that we could transfer back to scheme 
 members as a result. I hope that the Committee accepts the clause. 
 Question put and agreed to. 
 Clause 149 ordered to stand part of the Bill.

Clause 150 - Fraud Compensation Fund

Amendments made: No. 392, in 
clause 150, page 94, line 9, leave out 'and'.
 No. 393, in 
clause 150, page 94, line 10, at end insert 
 ', and 
 ( ) any income or capital gain credited under subsection (2).'.—[Mr. Pond.]
 Clause 150, as amended, ordered to stand part of the Bill. 
 Clause 151 ordered to stand part of the Bill.

Clause 152 - Information to be provided to the Board

Amendment made: No. 394, in 
clause 152, page 95, line 14, leave out from 'provide' to 'information' in line 15 and insert '— 
 (a) to the Board, or 
 (b) to a person— 
 (i) with whom the Board has made arrangements under paragraph 17A of Schedule 5, and 
 (ii) who is authorised by the Board for the purposes of the regulations,'.—[Mr. Pond.]

Nigel Waterson: I beg to move amendment No. 412, in
clause 152, page 95, line 16, at end insert 
 'and in so far as the information is relevant to the discharge of its function.'.
 Clause 152 takes the prize in a Bill that, despite its length, is short on crucial detail. When I read it this morning, I wondered whether it was an April fool hoax on the part of the Government. To say that subsection (1) does not give much away is a massive understatement. It says: 
''Regulations may require such persons as may be prescribed to provide to the Board information of a prescribed description at such times, or in such circumstances, as may be prescribed.''
 That is a little like going to the chemist. It contains three different sets of regulations. The Committee now knows what I shall say before I say it: I accept that there is no danger of seeing any draft regulations. I suppose that we might tease out of the Minister vaguely how his mind works, but it is an extraordinary clause and the potential jackboots that are inherent in it need removing. That is why we want to insert the words, 
''and in so far as the information is relevant to the discharge of its function.''
 The clause gives almost limitless powers to the board to require information. Even though clause 153 contains similar wording, it is imperative that such a vast potential power under clause 152 has some limit upon it. I hope that the Minister accepts the force and wisdom of that argument.

Malcolm Wicks: We are not in a joking mood and the clause is not an April fool. Regulations under clause 152 will require specified people to provide specified information to the board or its agent, in certain specified circumstances. The amendment would clarify that the regulations may make provision only in respect of information that relates to the board's functions. Although the other information clauses specify that the data that the board gathers must be relevant to its functions, it is not considered necessary to make similar provision under clause 152.
 The clause is designed to ensure that certain people automatically provide the board with information at specified times, including information that is required to calculate individual entitlement. 
 Let me give two examples of what the regulations will cover. First, individuals will be required to inform the board of a change in their circumstances. For example, a surviving dependant should send notification of death to the board. Secondly, the regulations may require groups, such as insolvency practitioners, trustees or employers, to notify the board when they receive information that is relevant to the exercise of the board's functions. That regulation-making power is required in addition to the other information-gathering clauses because the board cannot trawl for information. Instead, individuals will be required to provide information automatically to the board. 
 We fully support the amendment's intention. I assure Committee members that regulations under clause 152 will refer only to information that is relevant to the board's functions. On that basis, it is not considered to be necessary to specify that. I hope that with that reassurance, the hon. Gentleman, being a reasonable man, will withdraw his amendment.

Nigel Waterson: I am not remotely reassured. We shall all tremble in fear of the knock on the door in the middle of the night on the basis of provisions in the clause. This is extraordinary drafting. However, if we divided on it, we would lose, so I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Amendment made: No. 395, in 
clause 152, page 95, line 20, at end insert— 
 '( ) Regulations made by virtue of paragraph (b) of that subsection must make provision regarding the manner in which the persons required to provide information are to be notified of the identity of the person authorised as mentioned in sub-paragraph (ii) of that paragraph.'.—[Mr. Pond.]
 Clause 152, as amended, ordered to stand part of the Bill.

Clause 153 - Notices requiring provision of information

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: I have some legitimate concerns about the extent of the clause's provisions. Subsection (2)(b) is about notices being given by the board and also by
''a person authorised by the Board for the purposes of this section in relation to the scheme.''
 What kind of people will they be? There is an issue with paragraph (b), which refers to professional advisers 
''in relation to the scheme''.
 To what extent are they covered by professional privilege? 
 An interesting point has been raised with me. Clause 234 deals with information given to a professional legal adviser—a term covering solicitors and barristers, and their equivalents in Scotland. Is it also intended to cover anyone appointed under section 47(1) of the 1995 Act? If that is the intention, it will bring into the provision some non-lawyers, such as firms of benefit consultants, who may, out of an abundance of caution, have been appointed as legal advisers for section 47 purposes. That counts as an unintended consequence, but it is a specific issue that must be addressed.

Malcolm Wicks: Clause 153 should be viewed in conjunction with the other PPF information-gathering provisions, which will enable the board to gather the data that it will need to carry out its functions. Under the clause, individuals involved with a scheme will be required to disclose information that is relevant to that scheme on notice in writing from the PPF, or someone acting on its behalf. Other people who are authorised might include actuaries or a property expert. The notice must specify what information is required and how it must be produced, including the time limit for its production. As always, the board may only gather information that is relevant to its functions. This power is targeted at gathering information during the assessment period. For example, in order to carry out its valuation, the board may wish to ask the employer to provide information that is necessary to calculate individual entitlement.
 Because the matter emerged earlier in our proceedings, I should like to confirm that legal professional privilege will not be breached. That is set out in clause 234. 
 Question put and agreed to. 
 Clause 153 ordered to stand part of the Bill.

Clause 154 - Entry of premises

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: As you know, Mr. Cran, Conservatives are natural defenders of people's legal and human rights, so we are always very worried about clauses with headings such as ''Entry of premises''. That is particularly the case in this instance, as this clause is in the same part of the Bill as the infamous clause 152.
 On any view, clause 154 is very widely drawn; it relates to any premises where documents relevant to the employer are kept even if there is no direct evidence that there are any documents to do with the pension scheme in those premises. Presumably, the offices of any advisers to the employer will be included. 
 Does the clause also enable the board to appear at the premises of a newspaper that is carrying out an investigation into the employer or its funding position in order to obtain relevant documents? 
 There will need to be some high Chinese walls between those involved in the investigative parts of the PPF—the people who abseil down buildings to get information—and those giving advice or directions on investments. Does the Minister have any comments on that concern? 
 My final point echoes one made in relation to an earlier amendment. Subsection (5) states that documents 
''may be retained until the end of the period''.
 There is a basic 12-month period, with extensions. Inherent in that should be the requirement that any such document can be retained unless, on reflection, it is clearly irrelevant to the investigation. Perhaps we should table an amendment to that effect. We have all seen footage of dawn raids by organisations such as the Office of Fair Trading, which seem to have a remarkable ability to hoover up masses of stuff, some of which turns out later to have nothing to do with their investigations. I am sure the Minister agrees that we cannot allow people to go on fishing expeditions, as lawyers persist in calling them.

Malcolm Wicks: The clause allows the board to appoint a person who may enter scheme premises to gather information in relation to the functions of the PPF. That is not the same as an inspection in the sense of the regulator provision. It will be routine for the board to visit premises, normally with prior appointment, during the assessment period. That is necessary because once a scheme's employer has entered insolvency proceedings, an assessment period will commence.
 During that period, the board will carry out a valuation of the assets and liabilities of the scheme, which will be used to inform the decision as to whether that scheme should enter the PPF. The power to enter premises will in that case simply allow actuaries and other professionals to gather the information necessary for that valuation. That is why the board will appoint a person who is authorised to enter premises where information in relation to that scheme may be held. That is similar to an auditor entering premises to view documents, gather data and ask questions. It is vital that the board can carry out the valuation and that it has accurate information to enable it to do so. However, it will not have unrestricted powers; it may only gather information that is relevant to its involvement in that scheme. 
 I hope that I have reassured the hon. Gentleman, as I tend to do on these occasions. We do not anticipate that a crack squad from the PPF will abseil down the building occupied by the Eastbourne Bugle and storm its offices; that is not our intention. 
 Question put and agreed to. 
 Clause 154 ordered to stand part of the Bill.

Clause 155 - Penalties relating to sections 153 and 154

Amendment made: No. 396, in 
clause 155, page 97, line 31, leave out from 'required' to 'is' and insert 
 'to produce under section 153 or 154'.—[Malcolm Wicks.]
 Clause 155, as amended, ordered to stand part of the Bill.

Clause 156 - Warrants

Question proposed, That the clause stand part of the Bill.

Malcolm Wicks: It will help if I speak to this clause, albeit briefly. It relates to warrants and it is important to put the Government's intention on the record.
 In extreme circumstances, the board's power to gather information may be ineffective. For example, it may believe that if it asked for certain data they would be removed or destroyed. In such circumstances, there is a safeguard and the board may apply to a justice of the peace for a warrant to enter premises, using reasonable force if necessary, and to search for and take possession of documents or copies of documents. 
 The justice of the peace will issue a warrant only if he or she is satisfied on the basis of the information given to the board on oath that certain conditions are met. That will ensure that in extreme circumstances, when the board is being obstructed from gathering information, it can enforce compliance, which might prevent vital evidence from being destroyed. However, it is intended that the board will apply for a warrant only in the most serious of cases, such as if there is evidence to suggest that there is considerable risk of documents being altered or destroyed, or if requests for documents under clauses 153 and 154 have not been complied with. It is recognised that in the vast majority of cases, scheme trustees and other individuals will provide the information requested, which means that the powers will be used very sparingly. 
 Question put and agreed to. 
 Clause 156 ordered to stand part of the Bill. 
 Clauses 157 and 158 ordered to stand part of the Bill.

Clause 159 - Restricted information

Amendment made: No. 397, in 
clause 159, page 100, line 17, leave out 'other than the Board' and insert 
 'authorised under subsection (2)(b) of that section'.—[Malcolm Wicks.]
 Clause 159, as amended, ordered to stand part of the Bill. 
 Clauses 160 to 162 ordered to stand part of the Bill.

Schedule 8 - Restricted information held by the Board: certain permitted disclosures to facilitate exercise of functions

Question proposed, That this schedule be the eighth schedule to the Bill.

George Osborne: This is a small point, and I am sure that everyone is keen to get on. It will be interesting to know why there is a distinction between the information that can be passed to the pensions ombudsman and the information that can be passed to the ombudsman for the board of the pension protection fund. We shall talk about ombudsmen, perhaps when we get back from Easter, depending on when the Committee adjourns. However, it is interesting that there is a limit on the information that should go to the pensions ombudsman. Given that there is no limit on the information that goes to the pensions regulator, the Bank of England, the Auditor General and so on, why the restriction on the information that goes to the pensions ombudsman?

Chris Pond: Perhaps I should explain that under clause 162, to which schedule 8 relates, the board may disclose information to a limited number of public and regulatory bodies to facilitate the exercise of certain functions. The schedule contains the details of those bodies and which functions are to be included. The organisations are specified in the first column of the schedule, and disclosure would be permitted only if it would enable or assist that body in the exercise of specific functions, which are listed in the second column.
 Throughout our debates on the information clauses, we discussed the fact that the board will need the power to gather and disclose information in limited circumstances. We do not wish to create a situation in which two bodies are unable to share information that would be relevant to both their functions. That could restrict the effectiveness of both bodies, while increasing the administrative burden for everyone involved. 
 On the PPF ombudsman, there is, of course, an independent right of appeal for PPF-related matters. The ombudsman can ask for information and, under those circumstances, that transfer of information would be covered by separate arrangements.

George Osborne: I think that the Under-Secretary misunderstands me. I totally understand why the ombudsman for the board of the PPF can receive information; that is not my question. My question is why the pensions ombudsman—a separate ombudsman—can receive only a limited amount of information, and certainly does not have the same degree of disclosure enjoyed by the Bank of England, the pensions regulator, the Comptroller and Auditor General, the Auditor General for Wales, the Auditor General for Scotland, the Comptroller and Auditor General for Northern Ireland and the Counter Fraud and Security Management Service.

Chris Pond: I had indeed misunderstood the hon. Gentleman's question, and I apologise for that. I do
 not wish to detain the Committee for too long by replying in detail to it now, so perhaps I could write to him.
 Question put and agreed to. 
 Schedule 8 agreed to.

Clause 163 - Other permitted disclosures

Amendments made: No. 68, in 
clause 163, page 101, leave out lines 20 and 21 and insert— 
 '(a) by or on behalf of— 
 (i) the Board, or 
 (ii) any public authority (within the meaning of section 6 of the Human Rights Act 1998 (c.42)) which receives the information directly or indirectly from the Board, 
 for any of the purposes specified in section 17(2)(a) to (d) of the Anti-terrorism, Crime and Security Act 2001 (c.24) (criminal proceedings and investigations),'.
 No. 69, in 
clause 163, page 101, line 22, leave out 'other'.
 No. 70, in 
clause 163, page 102, line 32, at end insert— 
 '( ) Section 18 of the Anti-terrorism, Crime and Security Act 2001 (c.24) (restriction on disclosure of information for overseas purposes) has effect in relation to a disclosure authorised by subsection (2) as it has effect in relation to a disclosure authorised by any of the provisions to which section 17 of that Act applies.'.—[Mr. Pond.]
 Clause 163, as amended, ordered to stand part of the Bill.

Clause 164 - Disclosure of information by the

Amendment made: No. 71, in 
clause 164, page 102, line 41, after '(2)' insert 
 'above or section 19 of the Anti-terrorism, Crime and Security Act 2001 (c.24) (disclosure of information held by revenue departments)'.—[Mr. Pond.]
 Clause 164, as amended, ordered to stand part of the Bill. 
 Clauses 165 and 166 ordered to stand part of the Bill.

Margaret Moran: I beg to move, That further consideration be now adjourned.

Malcolm Wicks: I believe that it is the convention that the motion to adjourn is debatable. I will not argue against my hon. Friend's suggestion, but the hon. Member for Eastbourne raised a point of order at the beginning of our proceedings this morning—[Interruption]—as he eagerly recalls, and I would like to respond briefly to his questions. As I come from what I call the Department for Work, where we believe in the work ethic, I believe that there is no reason why we should not debate this subject long into the evening, but that may not be universally popular.
 I would like to clarify our proposed timetable for discussing our remaining new clauses. As hon. Members are aware, we have tabled new clauses relating to the pensions ombudsman and additional voluntary contributions. We had hoped to table more new clauses before the Easter recess, but I regret that 
 that has not proved possible. We therefore plan to table further new clauses during the recess. I am advised—although you may have better information, Mr. Cran—that amendments tabled before Thursday 15 April will be printed in the Order Paper on Friday 16 April. Amendments tabled on 16 April will appear on the Order Paper on 19 April and, I understand, will not be starred when we reconvene on 20 April. 
 Of course, I recognise that that leaves members of the Committee in a difficult position regarding notice of Government amendments. To try to help them with that, I will send copies of the amendments and briefing notes to hon. Members as they are tabled. As previously discussed, we are still aiming to table a number of amendments relating to subjects announced in the action document in June 2003 but not yet included in the Bill. Those include changes to section 67 of the Pensions Act 1995, which relates to the modification of the accrued rights of members of occupational pension schemes. The amendment would enable schemes to rationalise existing arrangements and reduce administration costs and complexity, provided that certain safeguards are in place. 
 A new power will require employers to consult affected active members and/or their representatives on key major changes to future pension arrangements. Amendments will also relate to the transfer and preservation provisions in the Pensions Act 1995, which include a measure for people who change jobs regularly, to flexible retirement provisions enabling employees to draw a pension while continuing to work and contribute, and to the age at which deferred pensions can be taken in schemes in which the normal retirement age is below 60. That links with changes in pension age in public service schemes. 
 Additionally, as I indicated earlier, we shall table some further amendments relating to the pensions regulator, which deal with pensions liberation—pensions ''liberation'' is not as nice as it sounds; it is something that we do not really like. They will also give new powers to the regulator to keep pace with constantly evolving unlawful practice. There will also be amendments to enable the regulator to appoint and maintain a register of approved independent trustees. 
 We also intend to table new clauses dealing with moral hazard, to provide adequate protection against the manipulation of liabilities by employers that wish to take unfair advantage of the pension protection fund. Further PPF-related amendments will give the PPF the power to publish reports, provide limitations on investment powers and ensure parity of treatment for members of schemes that do not enter the pension protection fund because of their funding position. 
 I do not expect that this afternoon's debate is over, although we are discussing a motion to adjourn, but in case I do not have an opportunity to speak again, may I wish you, Mr. Cran, and Mr. Griffiths in his absence, and all Committee colleagues and supporting officials a happy Easter?

Nigel Waterson: I echo those Easter sentiments.
 What is one to say? Hardly any of the issues that the Minister has flagged up in his comments, which were helpful as far as they went, are new. On the contrary, they are almost all matters that the industry and the experts expected to be in the Bill. The Minister talks about the Department for Work, but some sections of that Department have not been working hard enough. 
 I want to make a point that I have made before, but which seems to have fallen entirely on deaf ears. This point is not just about amendments or new clauses that will be tabled during the recess so that they are printed, and debatable on the Tuesday when we come back. Perhaps Opposition Committee members will have had the chance at least to glance at them, and at the explanatory notes. The whole point is that people out there want to know that they are being tabled, and want to have the chance to comment on them through Committee members, and I do not think that they will have that opportunity. That is an outrageous way to legislate in a complex area of the law, which will severely limit our ability to scrutinise those parts of the Bill, and will make it all the more necessary for proper scrutiny to take place—ultimately, in another place.

Malcolm Wicks: I appreciate the briefing problems that the hon. Gentleman faces, and I promise to send a copy to the House of Commons Library.

Nigel Waterson: A copy of what?

Malcolm Wicks: A copy of the things that I promised to send to Committee members. I know that the hon. Gentleman draws a lot on the Library information documents; hence my suggestion.

Nigel Waterson: I never know whether the Minister is being funny or not, and I suspect that I am not in the minority. This is a serious point; it is up to the Government whether they want to seem even more crassly incompetent to the outside world and to the people who will have to make the legislation work in the real world than they already do. That is a matter for them. We will do what we can to scrutinise the legislation, but I suspect that it will run into closer scrutiny in another place.
 Anyway, I do not want to ruin this pre-Easter warmth and amity, so I again wish the Committee a happy Easter—and one free from worries about rafts of new clauses.

Steve Webb: If those clauses, which have proved so tricky that they have not yet been written, finally arrive imperfect from the womb in our e-mail inboxes on Easter Sunday, shall we be able to table amendments to them? Once we have seen them, if there are bits of them that we do not like, will it be in order to table amendments to a new clause that will not, at that point, have been added to the Bill?

James Cran: Yes.

Steve Webb: In that case, I am happy to agree that the Committee should now adjourn.

Nigel Waterson: But in practical terms, if any of the new clauses are debated straight after the Easter break, there will not be time to table amendments to them that will be debatable.

Steve Webb: I am grateful for that intervention. May I ask for further clarification, Mr. Cran? I can understand why Government new clauses—even those that appear the day before our debate and are therefore starred—will be selected for our Tuesday sitting, otherwise I do not know what we shall do on that Tuesday. Is there a distinction between Government and non-Government new clauses, because the latter would be starred and not selectable?

James Cran: Having consulted those who know, I am advised that if hon. Members wish to table amendments to new clauses that are available, it would be much better for the Committee if they could do so by the Friday, if possible. If they table them on the Monday, the Chairman will have to use his discretion.

Nigel Waterson: I am sorry, Mr. Cran—this is not some anti-religious attempt to stop Easter, but some of
 the new clauses will be printed on the Monday, so we cannot possibly do that, if I am correct in assuming that by ''the Friday'', you mean the Friday before we return.

James Cran: For the avoidance of any doubt whatever, I shall read out this piece of paper that I have been given. Amendments to new clauses: if the new clauses are not seen in print until the Monday, they will be starred.

Nigel Waterson: So they cannot be debated?

James Cran: I think that we have got there, have we not?
 Question put and agreed to. 
 Adjourned accordingly at one minute to Four o'clock till Tuesday 20 April at half-past Nine o'clock.